For many homeowners, refinancing their home mortgages makes sense given the right conditions. However, the wrong conditions could mean there is very little or no benefit to refinancing. If you are thinking of refinancing your home mortgage, here are several considerations to look at before making your decision.
In the right market, refinancing your home could score you a lower interest rate. A lower rate translates to savings that could be in the thousands. However, if the interest rates are not much lower than what you are paying now, refinancing might not be worth it.
The interest rate you will be offered is based on several factors, including your credit history, your income, and the equity you currently have in your home. The exact requirements for each lender varies, so contact the one in which you are interested to find out whether or not you can get a lower interest rate. If so, take the time to do the math to determine if the numbers indicate a savings for you.
Regardless of which lender you choose, there will be lender fees attached to refinancing your home. You need to be clear on which fees your lender is charging so you can include the costs in your assessment of your situation.
Some fees are set in stone. For instance, the cost of obtaining your credit report and the appraisal are usually set and non-negotiable. However, some fees might change throughout the process. Find out what those fees are from the lender and ask how much of a difference in the initial fee and final fee can you expect. You should receive an approximation.
When you refinance, you have the option of switching loan types. For some, switching loan types makes sense. For instance, if you have an adjustable rate mortgage, switching to a fixed rate before the rate changes to a higher value gives you the chance to score a lower rate and not have to worry about paying far more for your home.
Alternatively, if you are planning to sell your home in the next few years, switching from a fixed rate to an adjustable gives you the chance to get an even lower rate and get out of the home before the rates go higher. Your lender can help you determine which loan type would work best in your situation.
The decision of whether or not to refinance is solely yours, but consult with your lender and other financial professionals to get a full understanding of your options.